South Korea's Financial Service Commission is set to revamp its audit review and disclosure system to enable full adoption of the International Finance Reporting Standards by 2011.

With the IFRS adoption, a total of 1903 listed companies and financial institutions in the country will be required to prepare consolidated financial statements beginning next year. The country’s financial authorities are working on the new disclosure system in order to lessen the burden on businesses and to be consistent with the objective of investor protection.

Financial authorities and industry sources say the country’s financial authorities including the Financial Services Commission, the Financial Supervisory Service, the Korea Exchange, and the Korea Accounting Institute and the industry have recently formed a task force team which is tasked to overhaul the country's disclosure system.

The task force team met for the first time when the financial authorities outlined their plans to revamp related systems to prevent confusion among businesses surrounding the IFRS adoption and promote early acceptance of the IFRS. At the meeting, business participants reportedly made strong calls for solutions to surge in financial reporting burden caused by the IFRS conversion.

The proposed plans include; 1) securing consistency in disclosure requirments; 2) promoting early acceptance of consolidated financial statements based on K-IFRS; 3) easing financial reporting burden; and 4) promoting the wider adoption of consolidated financial reporting.

With the adoption of the IFRS, businesses should prepare and present consolidated financial statements which means significant adjustments in the form and contents of financial statements and notes. In this regard, businesses have voiced concerns.

Financial authorities are considering a wide array of steps in order to address their concerns. First, regulations will be written to allow businesses to prepare registration statements on a consolidated basis in the same way as consolidated financial statements are prepared, in a bid to reduce workload caused by different information requirements of consolidated annual reports and registration statements.

Meanwhile, auditors will be required to review first quarterly reports prepared and presented under IFRS. This is aimed to ensure the reliability of financial statements prepared by SMEs under IFRS as there will be no auditor review requirement for the fourth quarter financial reports of small businesses with assets of less than 500 billion won next year.

Measures will be prepared to reduce businesses’ financial reporting burden. Regulations will be prepared to allow parent companies to request data from their subsidiaries and to require subsidiaries to be liable for damages. Subsidiaries that are required to disclose their financial information will be confined to major subsidiaries which account for more than 10% of revenues of their parent company.